It is with great honor and great privilege that I join you here tonight in this chamber to mark another milestone in our state's history. I am humbled tonight to be addressing this joint session as your governor. As I deliver my first State of The State address, I do so with the humility of a public servant -- but one who has been called to a great task. And I thank you for sharing this moment with me tonight.

As public servants, we are called to put others ahead of ourselves. And I don't believe you'll find anyone with a bigger heart and desire for serving others than your first lady -- my wife, Dianne.

I would also like to thank members of my Cabinet here tonight. Thank you for serving and for joining me in meeting the challenges that lie ahead.

Chief Justice Cobb, distinguished members of the Alabama Supreme Court --thank you for the work you do, and for your service to the state.

Today we face great challenges in Alabama. Our state, like so many others in our country, finds itself at a pivotal point in time. We are at a time in our state's history when we must make difficult choices. And what we choose to do -- or not to do today -- will have far-reaching effects on the future of Alabama and our citizens. But they are choices that must be made. And as your governor, called to serve our citizens, I am ready to make those tough choices.

I told you many months ago when I decided to run for governor, my highest priority for Alabama is creating jobs. That has not changed. Stimulating our economy and job creation for the people of Alabama is, and will remain, the focal point of my administration.

Here in Alabama, we have inherited a budget this year that, at best, is unrealistic. Both our Education Trust Fund and our state's General Fund budgets are based on unreliable revenue projections. Now, five months into the 2011 Fiscal year, what we feared is true. We do not have enough money to sustain either budget.

Taxpayers deserve better.

One-time money from federal stimulus dollars propped up our struggling budgets. Today with stimulus money depleted, we are left with the loss of hundreds of millions of dollars in both budgets.

We now face a $165 million dollar shortfall in the education budget, and a $110 million dollar shortfall in the General Fund Budget.

Now there is only one thing to do. Alabama state government must live within its means. We must do a better job of prioritizing our resources to get the most out of our state expenditures.

Year after year, it has been a recurring theme in our state government to adopt a budget that must be prorated. That must change. My goal is to never present a budget to you that must be prorated. That's why the budgets I present will be balanced -- they will be responsible and they will be conservative.

It will be a challenge. First we must balance our current education and General Fund budgets. Then we must look to the 2012 budgets, and prioritize what taxpayers can and cannot afford to keep funding.

We will be called on to do without. But while there are sacrifices that must be made, I can tell you we will come out on the other side of this difficult time stronger than ever.

Alabama will not look to the federal government for one-time funds to prop up an already unrealistic budget. We will not look to Washington to bail us out. Tonight in our Capitol city -- in this chamber -- at this moment -- we take our future back!

Together I have been working with Lieutenant Governor Kay Ivey, with Speaker of the House Mike Hubbard, and with President Pro Tem Del Marsh to meet the challenges we face in crafting a state budget that lives within our means. I also want to thank our budget chairs -- Representatives Jay Love and Jim Barton and Senators Trip Pittman and Arthur Orr -- for working with us to craft responsible budgets. Ladies and gentlemen, I can tell you we have had unprecedented collaboration on this budget.

Together we will get this done. Tonight I share with you all, that regardless of what you may have heard or read, we are on the same page. We are working everyday -- relying not on Washington, but on our own abilities as a state to accomplish the task set before us.

In the historic elections of 2010, the message from the people of this country was loud and clear. They expect us to govern right. They expect us to have an ethical government that is fiscally responsible and creates jobs. As Republicans we now have a tremendous opportunity. We would not be here without the hard work of Speaker Hubbard and the Republican Party, and I want to thank them for all they did.

But the election is over and now we represent all of Alabama. And together we will work hard to address the critical challenges before us. Now we must get to work.

The 2011 Education Trust Fund budget is based on revenues estimates that were wrong and artificially inflated with one-time federal stimulus dollars.

Yesterday I had no choice but to declare 3 percent proration in the Education Trust Fund. There were no other alternatives to make up for the hundreds of millions of dollars that just are not there.

But I will tell you tonight, as your governor this is the last time that will happen. Beginning with the 2012 budget, it is my goal that no budget in my administration will ever have to be prorated.

In order to make that happen, though, there are sacrifices that must be made. We will ask our teachers to contribute more to their individual retirement and to health care insurance programs.

I am also recommending the repeal of the DROP Program which has overly taxed our retirement system. The taxpayer simply cannot afford to sustain the continued high cost of teacher retirement and health care.

We are only asking our teachers to do what virtually everyone else has been forced to do in these tough economic times.

But you need to know within my budget, there will be no reduction in state-funded teacher units. Nothing is more important to me than protecting our classroom teachers. And though there will be sacrifices that must be made -- I will not sacrifice one single teacher's job.

Classroom sizes will not increase. There will be no cuts to the length of the school year or to contract days for teachers or support personnel.

We must redirect our priorities within the ETF. I, along with our leaders in our K through 12, postsecondary, and higher education systems have collectively taken a long hard look at the budget and determined what should be the priorities for this state.

The education budget I present will preserve, protect and bolster areas that should remain a priority for all of Alabama: First, we will devote $5 million dollars in the education budget specifically for classroom t eaching supplies. We expect our teachers to lead our children to succeed and excel in the classroom. By funding classroom supplies we are giving our teachers the resources they need to meet those expectations.

We will protect the Alabama Reading Initiative.

We will protect the Alabama Math, Science and Technology Initiative.

We will protect the ACCESS Distance Learning.

We will expand our programs that prepare students for college by increasing the number of Advanced Placement teachers in our high schools.

We will strengthen our work force training programs in our two-year college system.

We will give flexibility to local school boards to prioritize and make decisions that affect the schools in their districts. We will remove restrictive language from legislation that dictates decisions made by these schools board and give them additional funding and flexibility so they can put the money to highest and best use.

We have made strategic investments in cancer research at UAB, the University of South Alabama and Auburn University.

We have increased state funding for higher education and given our presidents more flexibility in their budgets.

We have provided significant increases in state funding for disabled and special needs children and adults.

In the education budget I am presenting, we have done all these things while still balancing the budget -- which will not have to be prorated -- and without having to lay off one single teacher.

And now we must take steps to make sure we never find our state in such dire straits again. We must no longer base our education budget on unpredictable revenue projections. Rep. Greg Canfield, thank you for your leadership in writing legislation that will provide a sustainable funding base for the Education Trust Fund.

If we are going to solve the problems facing Alabama we must budget differently and we must budget responsibly. Send this bill to me and I will sign it.

One year ago, as a state representative from Tuscaloosa, I voted against our state's General Fund budget because I knew the budget far exceeded realistic revenue. And I was right. We have now exhausted our Rainy Day Fund. And yesterday I announced my intention to prorate the General Fund by 15 percent for the remainder of this fiscal year.

Now we face the task of looking to our 2012 budget, where there are difficult decisions that must be made. In the budget I am presenting, there will be sacrifices. There are losses. But it's what we must do to maintain and sustain a budget that taxpayers can afford -- one that is responsible, realistic and balanced.

In the General Fund, we are asking state employees to do what we have asked of our teachers -- increase their individual contribution to their retirement and health insurance programs.

Today the State of Alabama spends roughly $1 billion per year on pension costs and that number has been increasing in an unsustainable manner.

We will increase employee retirement contributions over three years. Once fully implemented, those increases will result in a savings of over $100 million for state government.

We will control taxpayer expenditures on public employee health benefits. State insurance boards will now be given the opportunity to make changes and come up with new ideas for health cost savings.

These are all sacrifices. But they must be made now, so we can rein in spending and responsibly operate state government. If we reform benefits now, this will prevent additional cuts to programs, services and employees in the future. And may well help these programs survive for generations to come.

Under the 15 percent proration of the General Fund for the remainder of this year, there are agencies that simply must be protected. Agencies that provide critical services will be protected through supplemental appropriations and prioritization of budgets.

We will protect our Medicaid Agency.

Medicaid which provides health care to approximately 1 million children, elderly and disabled people must be protected.

We must maintain necessary funding of the Department of Corrections.

But we also must be cost efficient in criminal justice spending. Twenty years ago the cost of corrections in Alabama was $133 million dollars. Today we spend more than four times that much. We must do better. A broad coalition of our top judicial and legislative leaders and members of my staff have been meeting to determine how we can do better. It's time to deliver our citizens a better public safety return on the investment of our corrections dollars, and I urge the Legislature to act this year.

In the General Fund, we will protect our military. In the budget I present, there will be protection for our Alabama National Guard.

We will preserve and protect the ability to maintain and achieve an ethical state government, by fully funding the Ethics Commission.

The new laws passed in December's special session will forever change how state government operates. The Ethics Commission now has subpoena power and must be given the resources it needs to enforce the new laws. I would like to take this moment and recognize the members of the Ethics Commission and commend them for the work they are doing. I want to ask Jim Sumner and members of the commission to stand.

The people of Alabama want their elected leaders to meet the strictest ethical standards, and we intend to offer the resources to make sure that happens. That is why we will also protect the Office of State Auditor to make sure we wisely use the assets we own.

There are hard decisions that must be made in order to balance the General Fund budget. While we are protecting these five areas I just mentioned, others areas will see deep cuts.

Aside from those protections, every agency in the state's General Fund will be cut anywhere from 15 percent to 45 percent. Some will no longer receive General Fund appropriation and will be eliminated.

We have eliminated a total of 217 line items from the General Fund, including 185 earmarks and 32 entities such as commissions and boards. Many are worthwhile. Many are not. But in this day and time taxpayers cannot afford to continue to support nonessential programs. We must, in the 2012 budget, prioritize our resources and eliminate functions that are not part of the core mission of state government.

Historical sites, tourist attractions and Halls of Fame are wonderful for tourism and travel, but they are not as important as providing health care to low-income children and elderly or as to keeping state troopers on the road.

These are the hard choices I have had to make as your governor. We cannot continue to spend millions of dollars we do not have. The taxpayers deserve better.

It's time for our addiction to federal stimulus dollars to end, and for this state to take up a responsible budget. I will send up a budget that lives within our means, that is realistic and most of all responsible. The numbers you will see are real. They are conservative. We will balance our budget. We will not outspend what we are given. Families across Alabama work hard to make ends meet and must keep their checkbook balanced.

Ladies and gentlemen, the time has come for us to do the same.

Dark clouds have been looming overhead for some time. But, as I am so fond of saying, above the clouds, there's always the sun.

Today, I truly believe our state is on the verge of a dramatic change. Jobs are coming to Alabama. These are jobs that will support families, stimulate our economic growth and truly help turn things around for our state.

Since you elected me governor, I have been to every corner of this state looking for ways we can create jobs and stimulate economic growth.

Only a few days after the November general election, I was contacted by a company considering Huntsville as a site for its newest high-tech facility. This company would bring up to 100 Ph.D.-level employees to Alabama as part of its work force.

I knew Alabama needed this facility. I signed a letter to the company affirming my commitment to creating jobs and to helping them find the resources they needed to be able to choose Alabama. Since then I have not stopped in my mission to create jobs for our state.

Two weeks ago, we were in the Shoals where North American Lighting is located. The company is a leading manufacturer of automobile lighting. The Illinois-based business is expanding with a $35 million investment in Alabama that will create 250 new jobs.

Just last month we were in Troy, where CGI, a leading provider of information technology announced its expansion to provide even more jobs for the Wiregrass area.

And that's just the beginning. In the days to come we will be able to announce even more new and expanding businesses bringing new jobs to Alabama.

As a former business owner I understand the important role small business plays in our economy. That is why I am creating an Office of Small Business Development. Small businesses are the engine of economic growth. They are the backbone of a robust and vibrant economy.

We will continue to aggressively pursue businesses that bring new jobs to our state. That means providing work force training and resources to support companies.

For the first time, our economic development and job creation strategy will include a plan for how we engage our universities and institutions of higher learning. Once we accomplish this, I believe we will forever change the economic landscape of Alabama.

I will not stop working to bring jobs to Alabama. To build on these successes I am offering legislation designed to create jobs. The Full-Employment Act of 2011 will help small businesses to create jobs and put people back to work. Under the Full-Employment Act business will be given a one-time tax credit for each new job they create.

This is an enhanced version of the Reemployment Act of 2010 and is the centerpiece of our legislative agenda, and it will create jobs.

I will work with you to provide health care for all our fellow citizens that is both affordable and accessible.

But it does not need to be forced upon us by the federal government. By now, if you have ever spent more than five minutes with me, you know my concerns with the current health care law in this country. There is no doubt the federal takeover of our health care system will kill jobs in the U.S. and further cripple our economy.

I know many of you will offer constitutional amendments that will allow Alabamians to opt out of the federally mandated government run health care. Know that I will cheer you on. Let me be clear -- we will fight oppressive mandates on businesses and we will fight rationing of health care. For a free people there can be no other way.

States can be great laboratories for change. To that end, send me legislation that will offer tax incentives to employers who provide health insurance to their employees. I will sign your bill.

As a legislator, I supported efforts to curb illegal immigration in Alabama, as governor I will continue to do so. I understand the Legislature will take up the Alabama Taxpayer and Citizen Protection Act. Send me that bill. I will sign it.

Days into our new administration, I signed an executive order creating the Alabama Commission on Improving State Government. Made up of the state's leaders in the public and private sectors this commission will take a long hard look at state government, and provide a blueprint for how government should operate in the 21st century.

When the commission makes its recommendations, we will implement those changes wherever possible. I would like to thank President Pro tem Del Marsh for working with us to define the core functions of state government.

My fellow Alabamians, the hard truth is this. For too long, we have avoided the inevitable. Living within the flimsy outlines of an unrealistic budget has caught up with us. We have avoided making decisions for too long. Taxpayers deserve better!

The taxpayers of this country and especially this state sent a clear message in November. They expect us to make decisions.

The good and hardworking people of the great state of Alabama deserve better than for their state government to adopt another irresponsible budget, promising much in the beginning, but always falling short in the end. The taxpayers expect more and deserve for us to make these hard choices that lie ahead.

And it will require sacrifice.

Since I have been your governor I have made the commitment to visit with the families of our Alabama soldiers who died while serving our country. In the last month and a half, I have visited with two Alabama families whose sons gave their lives fighting for our freedoms. As I stood there at attention, by the side of the casket, and looked upon the fallen soldiers in their beautiful, formal, dress uniforms, I realized what true sacrifice is.

Those young fallen soldiers and their families gave so much so that you and I can enjoy our freedom. We've talked tonight about sacrifice. That's the ultimate sacrifice. These soldiers are the true public servants, the real heroes, and to them and their families I say thank you from the bottom of my heart.

So tonight I ask that you join with me as leaders of our state, in reclaiming Alabama's future. Join with me in responding to what we, as a public servants have been called to do. Join with me in leading our state by doing whatever we must do to budget responsibly. Join with me in my commitment to stimulate our economy and to create jobs for our fellow citizens.

Today is the day, and now is the time to act. The people of Alabama expect it. And they deserve it.

Thank you. God bless you all. And God bless the great state of Alabama."